Turkey: Angel Investment System In Turkey

I. ANGEL INVESTMENT SYSTEM IN TURKEY

The legal framework of the Turkish angel investment system is
regulated by Articles 10 and 14 of the Code numbered 6327 Amending
the Individual Pension Savings and Investment System Law and
Certain Laws and Statutory Decrees ("Code numbered
6327"). The Regulation on Angel Investments
("Regulation") was adopted for the
purposes of applying and implementing the Code numbered 6327. The
Undersecretariat of Treasury is competent to implement, apply and
audit this new system and relevant regulations.

The main rationale behind taking such legislative initiative is
to fill the gap experienced by small enterprises in accessing
financing sources. It is a well-known fact that due to the high
level of risk involved in start-up or growth phases, small
enterprises experience hardship and difficulties in terms of
finding eligible financing and borrowing sources which will support
their growth. The financial sources for new ventures are commonly
expected to be provided by angel investors. In order to promote
financing of small enterprises and entrepreneurs, the government
determined to incentivize angel investors with tax grants in return
for the financial sources they provide for small businesses.

II. BENEFITS GRANTED TO ANGEL INVESTORS

Real persons who are licensed to become angel investors under
the Regulation are entitled to benefit from tax deductions in
compliance with the Income Tax Code, numbered 193
("ITC"). The ITC and the Regulation
explain the tax benefits in detail.

A. Tax Deductions Under the ITC and the Regulation

Tax deductions in favour of the angel investors under the ITC
and the Regulation are envisaged as follows:

75% Tax Deduction

As per Provisional Article 82 of the ITC and Article 4 of
the Regulation, angel investors are allowed to deduct 75% of the
capital that they invest under the angel investment system from
their income and revenues subject to the annual return issued
during the year in which the shares were acquired. This is provided
that the shares are acquired after June 29, 2012 and held in hand
for at least two years. This two-year period starts as of the date
the capital is deposited in cash into the bank account opened on
behalf of the company in which the investment is made. It should be
noted that as a requirement for the initiation of the two-year
period and in order for the angel investor to be able to benefit
from tax deduction, capital subscriptions must be deposited to the
bank account in cash.

The price of shares acquired by the angel investor must be kept in
the exclusive bank account of the company. Management of the bank
account shall be under the control of the company invested in by
the angel investor, however expenses over a certain amount shall
necessitate joint signature. Please note that this account may
solely be used for the financing of the activities set forth in the
company's business plan.

100% Tax Deduction

The aforementioned deduction rate is applied as 100% for
the angel investors who invest in companies which have research,
development and innovations projects which were supported by the
Ministry of Science, Industry and Technology (Bilim Sanayi ve
Teknoloji Bakanlığı), Scientific and
Technological Research Council of Turkey (Türkiye Bilimsel
ve Teknolojik Araştırma Kurumu) and Small and Medium
Industry Development and Support Organization
(Küçük ve Orta Ölçekli
İşletmeleri Geliştirme ve Destekleme İdaresi
Başkanlığı) within the last five
years.

B. Validity Period for Tax Deductions and Maximum Deduction
Amount

As per Provisional Article 82 of the ITC, the tax deductions set
forth above in Section II.A shall be applied until December 31,
2017. However, please note that the Council of Ministers is
authorized to extend this period for up to five years.

Please note that the annual deduction amount under the
Provisional Article 82 of the ITC cannot exceed TRY 1.000.000.
However, the Council of Ministers has discretion to increase the
deduction rate and maximum deduction amount by up to 50% and also
to cancel out the aforementioned deduction rates and amounts
altogether.

C. Conditions for Benefiting from Tax Deductions

It must be noted that angel investments are subject to angel
investment licenses. This will be explained in Section II.C.1.b
below. In order to be entitled for angel investments and to benefit
from the tax deductions, real person investors must obtain a
license from the Undersecretariat of Treasury.

During the five-year license period, angel investors are
entitled to benefit from tax deductions for their individual
investments in up to twenty different joint stock companies.

In order to obtain the tax benefits explained above, angel
investors must apply to the Undersecretariat of Treasury prior to
investing in any company. At the same time, the entrepreneurs must
submit the company's articles of association to the
Undersecretariat of Treasury. Subsequently, the angel investors are
required to submit a business plan showing the purpose of the
investment and for how long the capital will be used. It should be
noted that the angel investors are not entitled to request from
entrepreneurs any document of indebtedness, securities such as
pledge or guarantees as to assignment or dividends, against the
capital invested by the angel investors.

The Regulation outlines in detail (i) the angel
investor qualifications; (ii) the terms and
conditions pertaining to the companies which the angel investors
invest in, and (iii) lower and upper limits of
investments in order for angel investors to be entitled to benefit
from tax deductions.

Qualifying as an Angel Investor Under the
Regulation

Being a Real Person

In accordance with the Regulation, angel investors are
defined as real persons conveying their own personal assets,
experiences, and/or savings to start-up or growing companies which
have a strong growth potential. Therefore, legal entities are not
qualified to become angel investors nor benefit from the associated
tax deductions. Only real persons may become an angel investor
under the Regulation.

Obtaining an Angel Investor License

To initiate angel investments and to benefit from tax
deductions, an angel investor needs to obtain a license from the
Undersecretariat of Treasury. The validity period of license is
envisaged as 5 years.

In accordance with the Regulation, (i) high income
or wealthy investors and (ii) experienced
investors are entitled to obtain an angel investor license,
provided that they are real persons. The Regulation provides
monetary thresholds and requirements on an applicant's
professional experience for the entitlement to obtain an angel
investor license.

We should note that pursuant to the Provisional Article 82 of the
ITC, angel investors cannot directly/indirectly or
separately/together be the controlling shareholder of the company
which they invest in. In the same manner, angel investors cannot
join and invest in business if the company is owned, supervised,
audited, controlled by, or directly/indirectly dependent on their
spouses, or their descendants, ascendants or collateral relatives
(including third degree collateral relatives).

The provisions of the Regulation are parallel with the Provisional
Article 82 of the ITC. Angel investors cannot carry more than 50%
of the voting rights. They also cannot appoint more than 50% of the
board of directors on their own or in conjunction with themselves,
or angel investor in conjunction with their spouses, or their
descendants, ascendants or collateral relatives (including third
degree collateral relatives).

Angel investors are entitled to hold privileged shares which grant
the right to be represented in the board of directors of the
company they invest in. The participation of angel investor in the
management of the company invested in by the angel investor is
limited to participation in the general assembly, to the board of
directors or to the advisory board or to the advisory committee.
Angel investor can perform an administrative function only in the
board of directors and cannot work as company personnel. Angel
investor cannot receive any salary or other fees from the company.
Non-compliance with these provisions shall result in the
cancellation of the angel investor license.

Tax Deduction Application Through Angel Investors'
Network

In order to be entitled to benefit from the tax
deductions, angel investors must apply to the Undersecretariat of
Treasury to obtain an angel investor license through an accredited
angel investors' network.

Angel investor networks are established by angel investors to
gather the angel investors and the entrepreneurs.

The Undersecretariat of Treasury accredits and audits the angel
investor networks. The accreditation period is set as five years.
However, the Undersecretariat of Treasury may extend this period
for periods of five-years. In order to be accredited by the
Undersecretariat of Treasury, an Angel investor network must fulfil
the requirements set forth in Article 34 of the Regulation.

If the accreditation of an angel investor network is cancelled, the
angel investments made before the accreditation cancellation date
shall still be subject to tax deduction. However we should note
that the angel investments made by the angel investors which are
members to the cancelled angel investors' network after the
accreditation is cancelled shall not qualify for tax deductions. In
the event an angel investor makes a license application to the
Undersecretariat of Treasury through an angel investors'
network and the network's accreditation is cancelled after the
application, the Undersecretariat of Treasury will complete the
application procedures regardless.

We should note that until 31 December 2013 angel investors must
apply directly to the Undersecretariat of Treasury in order to
obtain angel investor licenses, to apply to receive the associated
tax deductions and to declare angel co-investments. This is a
transitional arrangement applicable while angel investment networks
become established. After this date, angel investors must make
these applications and declarations through the relevant angel
investment network.

Conditions for the Company Invested in by the Angel
Investor

For the angel investor to be entitled to benefit from tax
deductions, the company which the angel investor invests in must
fulfil all of the following conditions:

The company must be established in the form of a joint stock
company under the Turkish Commercial Code numbered 6102; and

The total amount of the pre-investment net sales of the company
must not exceed TRY 5.000.000 in either of the last two fiscal
years; and

The company must not have more than 50 total employees;
and

The company must not be controlled by another company; and

The company must carry out its activities in the business
sectors specifically determined by the Undersecretariat of
Treasury; and

The shares of the company must not have been offered to the
public.

The principles pertaining to the companies invested in by angel
investors are provided in the Regulation in detail.

Conditions Related to Sectors and Business

In order for angel investors to be entitled to benefit
from the tax deductions, the angel investment must be made in
certain sectors and business areas which are determined by the
Undersecretariat of Treasury. National Product and Business
Classification (US-97) issued by Turkish Statistical Institute
(TUIK) was taken into consideration when these sectors were being
determined. These sectors and activities are given in detail as a
list within the Regulation.

Conditions Related to Investments

In order for angel investors to be entitled to benefit
from tax deductions, the following upper and lower investment
limits apply:

Lower Investment Limit

In order for angel investors to be entitled to benefit
from tax deductions, the minimum capital amount invested in each
company is set as TRY 20.000 per investment.

For the purposes of clarification, angel co-investment is defined
as at least two angel investors investing together in a company.
These shareholders are subject to the provisions for partners of
join-stock companies set forth in Turkish Commercial Code. Angel
investors are entitled to freely determine a leading partner in the
co-investment. The co-investors must jointly declare who the
co-investment and leading partner are to the Undersecretariat of
Treasury. If the angel investors invest in a company without this
written declaration to the Undersecretariat of Treasury, their
joint investments are not considered to be angel co-investments,
and therefore the angel co-investors cannot benefit from the
increased maximum investment limit provided for angel
co-investments explained above.

Although the Regulation does not include a clear provision on this,
it is understood from the interpretation of the provisions
regulating the upper investment limit that a company is entitled to
receive up to TRY 1.000.000 of investment annually from one or more
angel investors. In the event two or more angel investors come
together and establish an angel co-investment structure, this upper
limit is increased to TRY 2.000.000.

D. Tax Deduction Application to the Undersecretariat of
Treasury

In order to obtain the associated tax deductions, an Angel
investor must apply to the Undersecretariat of Treasury through the
accredited angel investors' networks with the documents listed
in the Regulation before making the investment.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

The importance the FCA places on protecting vulnerable consumers has become increasingly clear with the recent publication of its Financial Lives and draft FCA Mission: Our Future Approach to Consumers documents.

In April 2014, the final text of the revised Markets in Financial Instruments Directive (MiFID II) was adopted.

Some comments from our readers…“The articles are extremely timely and highly applicable”“I often find critical information not available elsewhere”“As in-house counsel, Mondaq’s service is of great value”

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here

If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you
are granted a non-exclusive, revocable license to access the Website under its
terms and conditions of use. Your use of the Website constitutes your agreement
to the following terms and conditions of use. Mondaq Ltd may terminate your use
of the Website if you are in breach of these terms and conditions or if Mondaq
Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to
read the full text of the content and articles available (the Content). You may
not modify, publish, transmit, transfer or sell, reproduce, create derivative
works from, distribute, perform, link, display, or in any way exploit any of the
Content, in whole or in part, except as expressly permitted in these terms &
conditions or with the prior written consent of Mondaq Ltd. You may not use
electronic or other means to extract details or information about Mondaq.com’s
content, users or contributors in order to offer them any services or products
which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the
suitability of the information contained in the documents and related graphics
published on this server for any purpose. All such documents and related
graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or
its respective suppliers hereby disclaim all warranties and conditions with
regard to this information, including all implied warranties and conditions of
merchantability, fitness for a particular purpose, title and non-infringement.
In no event shall Mondaq Ltd and/or its respective suppliers be liable for any
special, indirect or consequential damages or any damages whatsoever resulting
from loss of use, data or profits, whether in an action of contract, negligence
or other tortious action, arising out of or in connection with the use or
performance of information available from this server.

The documents and related graphics published on this server could include
technical inaccuracies or typographical errors. Changes are periodically added
to the information herein. Mondaq Ltd and/or its respective suppliers may make
improvements and/or changes in the product(s) and/or the program(s) described
herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally
identifies you, including what sort of information you are interested in, for
three primary purposes:

To allow you to personalize the Mondaq websites you are visiting.

To enable features such as password reminder, newsletter alerts, email a
colleague, and linking from Mondaq (and its affiliate sites) to your website.

Mondaq (and its affiliate sites) do not sell or provide your details to third
parties other than information providers. The reason we provide our information
providers with this information is so that they can measure the response their
articles are receiving and provide you with information about their products and
services.

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to
view the free information on the site. We also collect information from our
users at several different points on the websites: this is so that we can
customise the sites according to individual usage, provide 'session-aware'
functionality, and ensure that content is acquired and developed appropriately.
This gives us an overall picture of our user profiles, which in turn shows to
our Editorial Contributors the type of person they are reaching by posting
articles on Mondaq (and its affiliate sites) – meaning more free content for
registered users.

We are only able to provide the material on the Mondaq (and its affiliate
sites) site free to site visitors because we can pass on information about the
pages that users are viewing and the personal information users provide to us
(e.g. email addresses) to reputable contributing firms such as law firms who
author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us
not to disclose your details to any of these parties, please tick the box above
or tick the box marked "Opt out of Registration Information Disclosure" on the
Your Profile page. We and our author organisations may only contact you via
email or other means if you allow us to do so. Users can opt out of contact when
they register on the site, or send an email to unsubscribe@mondaq.com with “no
disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate
registration form. This is a personalised service where users choose regions and
topics of interest and we send it only to those users who have requested it.
Users can stop receiving these Alerts by going to the Mondaq News Alerts page
and deselecting all interest areas. In the same way users can amend their
personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an
identifying user number. The cookies do not contain any personal information
about users. We use the cookie so users do not have to log in every time they
use the service and the cookie will automatically expire if you do not visit the
Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to
personalise a user's experience of the site (for example to show information
specific to a user's region). As the Mondaq sites are fully personalised and
cookies are essential to its core technology the site will function
unpredictably with browsers that do not support cookies - or where cookies are
disabled (in these circumstances we advise you to attempt to locate the
information you require elsewhere on the web). However if you are concerned
about the presence of a Mondaq cookie on your machine you can also choose to
expire the cookie immediately (remove it) by selecting the 'Log Off' menu option
as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example,
advertisers). However, we have no access to or control over these cookies and we
are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement,
and gather broad demographic information for aggregate use. IP addresses are not
linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or
its affiliate sites) are not responsible for the privacy practices of such other
sites. We encourage our users to be aware when they leave our site and to read
the privacy statements of these third party sites. This privacy statement
applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or
contests. Participation in these surveys or contests is completely voluntary and
the user therefore has a choice whether or not to disclose any information
requested. Information requested may include contact information (such as name
and delivery address), and demographic information (such as postcode, age
level). Contact information will be used to notify the winners and award prizes.
Survey information will be used for purposes of monitoring or improving the
functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our
site, we ask them for the friend’s name and email address. Mondaq stores this
information and may contact the friend to invite them to register with Mondaq,
but they will not be contacted more than once. The friend may contact Mondaq to
request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’
information. When users submit sensitive information via the website, your
information is protected using firewalls and other security technology. If you
have any questions about the security at our website, you can send an email to
webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode),
or if a user no longer desires our service, we will endeavour to provide a way
to correct, update or remove that user’s personal data provided to us. This can
usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will
post those changes on our site so our users are always aware of what information
we collect, how we use it, and under what circumstances, if any, we disclose it.
If at any point we decide to use personally identifiable information in a manner
different from that stated at the time it was collected, we will notify users by
way of an email. Users will have a choice as to whether or not we use their
information in this different manner. We will use information in accordance with
the privacy policy under which the information was collected.

How to contact Mondaq

If for some reason you believe Mondaq Ltd. has not adhered to these
principles, please notify us by e-mail at problems@mondaq.com and we will use
commercially reasonable efforts to determine and correct the problem promptly.

By clicking Register you state you have read and agree to our Terms and Conditions